Amazon Plans New Video App, Latest Step Into TV Ad Market

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Author: Jessica Toonkel & Tom Dotan.  Source: TheInformation

Amazon.com is planning to launch a free, advertising-supported video service for the estimated 48 million people who use its Fire TV streaming video devices, say people familiar with the situation. The new service, which is being developed by Amazon’s IMDB subsidiary, will join a growing collection of efforts by Amazon to tap into the $70 billion TV ad market.

The company has already introduced ad-supported shows on IMDB, expanded video ads on its gaming site Twitch and run ads on NFL games on Prime Video, its primary streaming service. It is also expected to run ads on Prime Video in Europe for some sports events, said one of the people.

The Takeaway
• Amazon’s IMDB is discussing licensing shows for Fire TV app
• New app is latest in series of moves to sell TV ads
• Amazon’s ad revenue is expected to be $8 bn this year

Amazon’s ad business—mostly search ads and product sponsorships sold on its site and across the web—is growing faster than much of the rest of the company. It makes up most of the “other” segment in Amazon’s earnings statements, growing 132% to $2.2 billion in the second quarter. Wall Street firm Cowen estimates it will generate $8 billion in revenue from the category this year. That’s still a tiny fraction of Amazon’s expected $200 billion-plus revenue this year. And it is well behind what Facebook and Google make from digital advertising—Facebook had $13 billion in advertising in the second quarter alone. But Amazon’s access to shopping data gives it the chance to become a formidable rival.

“Amazon has very good data and if I could track back sales activity to the actual Amazon account and target those people, it would be very powerful,” said Andrew Sandoval, a media buyer with New York-based The Media Kitchen.

Fire TV Offering

The new Fire TV offering is separate from Amazon’s ad-free subscription Prime Video service, which has become a major rival to Netflix with original shows as well as recently-released series from TV networks. The Fire TV service is tentatively called Free Dive. Amazon is in talks with major studios to license older TV shows, which have already aired on TV networks, for Free Dive, the people said.

That suggests Free Dive will be similar to what Roku offers with its Roku Channel, a free, ad-supported app on Roku-powered devices and smart TVs, the people said. Roku has publicly championed the ad revenue from the Roku Channel as a key driver of its growing platform business, which brought in $90 million last quarter.

Roku recently announced it was going to be distributing the channel on the web and other devices that are not powered by Roku software. Roku is Fire TV’s biggest rival in the streaming-device market. This year it is expected to have 59 million users, ahead of Fire TV, eMarketer estimates.

The parallel to the Roku Channel suggests the new Free Dive app is targeting only a tiny portion of the TV ad market. Both Google’s YouTube and Facebook have been trying to lure away big advertisers from TV networks for a while, with limited success.

“Amazon has very good data and if I could track back sales activity to the actual Amazon account and target those people, it would be very powerful.”

Surprising Success

Still, for Amazon, expanding into video ads could fuel what is already one of the company’s fastest growing businesses. The profit margin of the ad business is likely to be higher than the Amazon’s overall profit margin, which was 5.6% in the second quarter. Retail has razor-thin profit margins.

Amazon sees an opportunity to grab ad dollars from the likes of Facebook and Google by providing more video inventory to advertisers that are eager to use the company’s targeting capabilities, the people said.

Advertisers who bought spots on NFL games on Amazon last year—paying $2.8 million for 30-second spots—were able to run ads across Amazon.com throughout the football season. Amazon and the NFL renewed the streaming deal for the 2018 and 2019 football season.

In Europe, Prime has licensed rights for sports events such as the U.S. Open tennis tournament in Britain and some Premier League soccer matches. Amazon is discussing showing ads during some sporting events, one of the people said, but declined to say which ones.

Amazon is also expanding video ads on its popular live-streaming platform, Twitch, which is widely used in the gaming community. And the company recently announced it was going to be including ads in the previously ad-free paid version of Twitch.